COURT FILE NO.: 12298/18 (Welland)
DATE: 20190125
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
THE CORPORATION OF THE TOWN OF PELHAM
Applicant
– and –
FONTHILL GARDENS INC.
Respondent
Brent Harasym, for the Applicant
Peter A. Mahoney, for the Respondent
HEARD: January 8, 2019
R. A. Lococo J.
REASONS FOR JUDGMENT
I. Introduction
[1] The Corporation of the Town of Pelham and Fonthill Gardens Inc. own adjoining blocks of land in Pelham. The Town and Fonthill Gardens each has the right to acquire land from the other in certain circumstances. Fonthill Gardens has registered a Notice of Option to Purchase on the title to part of the Town land.
[2] The Town recently completed construction of the Pelham Community Centre on part of the Town land. The Town has agreed to sell to an outside party part of the Town land that was not required for the community centre. The proceeds would be used to pay down debt incurred to fund construction of the community centre. A condition of closing requires the removal of the Notice of Option to Purchase from the title to part of the Town land.
[3] The Town brings an application seeking a declaration that Fonthill Gardens does not hold an option to purchase the entire block of Town land against which the Notice is registered. The Town is also seeking an order deleting registration of the Notice from the title to part of the Town land.
[4] For the reasons that follow, I am granting the application to the extent indicated below.
A. Background
[5] In 2005, the Town and Fonthill Gardens acquired adjoining blocks of land in the East Fonthill area of Pelham. Each block is in excess of 30 acres. The Town purchased the Town land for the purpose of developing a community centre. It was contemplated that Fonthill Gardens would develop and build a medical centre and a retirement residence.
[6] On March 31, 2014, the Town and Fonthill Gardens entered into an agreement entitled Purchase Option and Cost Sharing Agreement. That agreement was amended by an amending agreement dated June 4, 2015 (referred to in these Reasons, collectively with the original agreement, as the “POCS Agreement”). The POCS Agreement has a five-year term, terminating on March 31, 2019 (s. 2.2.). Any rights and obligations for matters undertaken during that term continue until such time as the obligations have been satisfied (s. 2.3).
[7] The recitals to the POCS Agreement indicate the following (among other things): (i) the parties intend to pursue the “coordinated servicing and development” of their respective lands; (ii) a portion of the Town land is surplus to the Town’s needs and therefore available for disposition; (iii) the Town has determined that an exchange of lands with Fonthill Gardens “to permit the development of a medical centre and a retirement centre and associated or complementary uses, and other uses may be permitted by the Town on a portion of the Town [Lands] will result in a net benefit to the Town”.
[8] As also contemplated in the recitals, the substantive terms of the POCS Agreement provide that each of the parties has the right to acquire land from the other upon specified terms. Under s. 10, the parties “consent to registration of this Agreement or a notice of it against the title to Fonthill Gardens Lands and the Town Lands.”
[9] Fonthill Gardens’ purchase rights relating to the Town land are set out in s. 5.1 of the POCS Agreement, entitled “Fonthill Gardens Option to Purchase”. Section 5.1 has two parts. The first part was included in the original agreement. The June 2015 amending agreement added the second part of s. 5.1.
[10] Under the first part of s. 5.1, Fonthill Gardens has the option to purchase all or a portion of a specified parcel of Town land, identified as Parcel A. Fonthill Gardens may exercise that option to purchase within one year of obtaining site plan approval from the Town for the development of a medical centre or a retirement residence on Parcel A.
[11] Under the second part of s. 5.1, the Town agrees to allow Fonthill Gardens to purchase an additional portion of the Town land on the same terms and conditions if (i) the additional Town land is “necessary for the construction of the Medical Centre and Retirement Residence”, (ii) the Town “does not require the Town Lands for its own purposes”, and (iii) the purchase of the additional Town land “does not interfere with the development of the Town Lands by the Town for its own purposes.” The additional Town land that is subject to Fonthill Gardens’ purchase right under the second part of s. 5.1 is referred to in these Reasons as the “Additional Town Land”.
[12] Among other things, the POCS Agreement also deals with sharing of development costs for roads, sewers and other services. Under s. 3.6, the Town agrees to retain an independent planning consultant to review all development applications with respect to the Town land and the Fonthill Gardens land. As well, s. 9 contemplates the use of arbitration to settle disputes between the parties that cannot be settled by negotiation or mediation.
[13] It is common ground that at the time the POCS Agreement was entered into, there was no firm indication of (i) how much Town land would be required for the community centre, or (ii) how the Town would finance the building of the community centre. The Town Council approved the construction of the community centre on April 25, 2016. The financial analysis presented at that meeting set out the estimated cost of construction and outlined the steps in the financing and procurement process. The Town decided that construction of the community centre would be financed by a combination of debentures (having a 30-year term), development charges and proceeds from the sale of surplus Town land. The portion of the required funding attributed to the sale of the surplus Town land was $12 million.
[14] Construction of the community centre then proceeded on a portion of the Town land. Construction was substantially completed in July 2018.
[15] On October 16, 2017, the Town Council adopted a bylaw declaring as surplus 19.75 acres of Town land not required for the community centre. The surplus Town land was then listed for sale.
[16] On October 19, 2017, Fonthill Gardens registered a Notice of Option to Purchase on the title to Town land that included part of the Town land that the Town Council had declared surplus. The Town land against which the Notice is registered includes: (i) Parcel A, that is, the optioned Town land referred to in the first part of s. 5(1) of the POCS Agreement; and (ii) part of the Additional Town Land referred to the second part of s. 5(1).
[17] By the fall of 2017, the Town and Fonthill Gardens were engaged in discussions relating to the proposed development of a medical centre, retirement centre and other commercial uses, as contemplated by the POCS Agreement. Fonthill Gardens did not submit an application for site approval for any proposed development at that time.
[18] By agreement of purchase and sale dated May 1, 2018, the Town agreed to sell part of the surplus Town land to a third party. A condition of closing requires the removal of the Notice of Option to Purchase from the title to the Additional Town Land that the Town has agreed to sell. The legal description of the Additional Town Land that is currently subject to the closing condition is parts 6, 14 and 15 of Plan 59R-16208. The Town intends to use the proceeds of sale of the surplus Town land to repay interim indebtedness to Infrastructure Ontario that would otherwise convert to debentures having a repayment term of 30 years.
[19] In September 2018, in contemplation of a site plan application, Fonthill Gardens submitted a “conceptual site plan” to the Town for the development of a retirement residence and other commercial uses. The land required for that development (including access) would include parts of Parcel A and the Additional Town Land. The plan also provides for development of a medical centre on other land that the Town owns.
[20] On October 19, 2018, Fonthill Gardens served an arbitration notice on the Town, as provided for in s. 9 of the POCS Agreement. A few days later, the Town brought this application. Fonthill Gardens then brought a motion to stay the application pending arbitration. For reasons set out in an endorsement dated November 15, 2018 (cited as 2018 ONSC 6821), Ramsay J. dismissed that motion.
[21] Following discussions between the parties through their counsel, Fonthill Gardens has deleted the registration of the Notice of Option to Purchase from part but not all of the Additional Town Land that the Town has agreed to sell under the agreement of purchase and sale dated May 1, 2018.
B. Position of the parties and matters to be determined
[22] The parties agree that Fonthill Gardens’ purchase right relating to Parcel A is an “option to purchase” that constitutes an interest in property. On that basis, it is common ground that Fonthill Gardens is entitled to register a Notice of Option to Purchase on the title to Parcel A pursuant to s. 71(1) of the Land Titles Act, R.S.O. 1990, c. L.5.
[23] The dispute between the parties relates to whether Fonthill Gardens is entitled to register the Notice of Option to Purchase on the title to the Additional Town Land.
[24] The Town says that Fonthill Gardens’ purchase right relating to the Additional Town Land is a personal right that does not constitute an interest in property. Therefore, Fonthill Gardens is not entitled to register a Notice of Option to Purchase on the title to the Additional Town Land.
[25] Fonthill Gardens says that its Additional Town Land purchase right (like its Parcel A purchase right) is an option to purchase that constitutes an interest in property. Fonthill Gardens also says that even if its Additional Town Land purchase right does not constitute an option to purchase, Fonthill Gardens is still entitled to register its interest on the title to the property since, at very least, it is “interested in … unregistered … rights [or] interests … in registered land” within the meaning of s. 71(1) of the Land Titles Act.
[26] Accordingly, the issues to be determined are as follows:
(a) Nature of interest in Additional Town Land: Is Fonthill Gardens’ interest in the Additional Town Land an option to purchase that property?
(b) Registration entitlement: Is notice of Fonthill Gardens’ interest in the Additional Town Land capable of being registered on the title to the property?
(c) Registration of Notice of Option to Purchase: Should the Notice of Option to Purchase be deleted from the title to the Additional Town Land that the Town has agreed to sell to a third party?
[27] I will address these issues in turn below.
II. Nature of interest in Additional Town Land
[28] Is Fonthill Gardens’ interest in the Additional Town Land an option to purchase that property?
A. Legal principles
[29] In Canadian Long Island Petroleums Ltd. v. Irving Industries (Irving Wire Products Division) Ltd., 1974 CanLII 190 (SCC), [1975] 2 S.C.R. 715, the Supreme Court addressed the nature of the interest conferred by an option to purchase land, as contrasted with the interest conferred by a right of first refusal. The court held that an option to purchase land constitutes an equitable interest in land, but a first refusal right does not. At pp. 731-32, the court indicated as follows:
An option [to purchase] gives to the optionee, at the time it is granted, a right, which he may exercise in the future, to compel the optionor to convey to him the optioned property…. In other words, the essence of an option to purchase is that, forthwith upon the granting of the option, the optionee upon the occurrence of certain events solely within his control can compel a conveyance of the property to him.
[30] The court (at p. 732) goes on to contrast the interest conferred by a right of first refusal, stating as follows:
[The first refusal right] was not specifically enforceable at the time the agreement was executed. The [right holders] were not given any right to take away [the grantor’s] interest without its consent. Their right under that clause was a contractual right, i.e., the covenant of [the grantor] that if it was prepared to accept an offer to sell its interest, the [right holders] would then, and only then, have a 30-day option to purchase on the same terms. The contingency in this clause is resolved solely upon the decision of [the grantor] to sell.
[31] As well, at p. 735, the court states that the section of the agreement providing the first refusal right “did not create property rights.”
[32] The Supreme Court’s decision in Canadian Long Island was recently considered by the Ontario Court of Appeal 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, 130 O.R. (3d) 641. As in Canadian Long Island, the Court of Appeal in Israel Estate considered the nature of the rights conferred by an option to purchase land and a first refusal right.
[33] In Israel Estate, the respondent conveyed land to purchasers that were interested extracting gravel from the property. The parties agreed that the respondent would have the “first option to purchase” the land for $1 once the gravel was removed. The decision turned on whether the respondent had “an interest in land, or only a personal contractual right”: Israel Estate, at para. 1. The Court of Appeal held that the respondent’s interest constituted an option to repurchase the land, which gave rise to an immediate equitable interest in the land, rather than a right of first refusal: Israel Estate, at para. 43.
[34] With respect to an option to purchase, the court indicates as follows (at para. 19), consistent with Canadian Long Island:
An option holder has an equitable interest in land, contingent on the holder’s election to exercise the option. Because an option to purchase creates an interest in land, it is specifically enforceable at the time the option is granted.
[35] With respect to a first refusal right, the court states (at para. 23):
[T]he right of first refusal is a personal right. It does not create an immediate interest in land …. Thus, it is not immediately enforceable by an action for specific performance. If, however, an owner of land receives an offer to purchase that it is prepared to accept, then the right of first refusal is converted into an option to purchase. At that point, the holder of the right of first refusal has an interest in the land, which can be specifically enforced …. [Citations omitted.]
[36] In Israel Estate, the Court of Appeal goes on to consider the extent to which the option holder’s control over the exercise of an option to purchase land affects the analysis as whether the option holder has an interest in the land. At para. 36, the court notes “apparent inconsistencies in the reasoning of the courts” on the control issue in Canadian Long Island and other Supreme Court decisions, which was previously the subject of comment in Jain v. Nepean (City) (1992), 1992 CanLII 7629 (ON CA), 9 O.R. (3d) 11 (C.A.), leave to appeal refused [1992] S.C.C.A. No. 473.
[37] In Israel Estate (at para. 37), the court states that as in Jain, the respondent’s repurchase right “was not within the control of the holder of the right”. Consistent with Jain, the court concludes that control is “not decisive”, and goes on to state (at para. 38) that instead of focusing on control, it is appropriate to view the issue “as one of contract interpretation: to determine the true intent of the parties at the time the Agreement was made.” The court finds (at para. 43) that “the intent of the Agreement was to give [the respondent] an immediate, equitable interest in the land”, as shown by the “purpose of the Agreement and the context in which it is made, its terms and the later conduct of the parties”.
B. Analysis
[38] As previously noted, the parties agree that Fonthill Gardens has an option to purchase Parcel A that constitutes an interest in land. The above case law supports that conclusion.
[39] The first part of s. 5.1 of the POCS Agreement provides as follows:
Subject to the provisions of this section, the Town hereby grants to Fonthill Gardens the option to purchase all or a portion of the Town land, identified as Parcel A … (the “Fonthill Gardens Option Lands”). This option to purchase may be exercised within one year of obtaining site plan approval for the development of the Medical Centre or the Retirement Residence on Parcel A. Should Fonthill Gardens fail to exercise the option to purchase within this one (1) year period, the option shall expire and be null and void.
[40] Similar to the facts in Israel Estate, Fonthill Gardens has the right to purchase all or part of Parcel A upon the occurrence of a future event, namely, “obtaining site plan approval for the development of the Medical Centre or the Retirement Residence on Parcel A.” The right to purchase is exercisable for one year following that approval. The initiation of the site approval application is within the control of Fonthill Gardens, but the approval itself is within the Town’s control. However, the Town’s control of the approval process is not absolute. In its review of the site plan application, the Town would be required by its statutory mandate to apply accepted planning principles, and to act in good faith in doing so. The POCS Agreement provides additional assurance, requiring that an independent planning consultant review development applications.
[41] In any case, as indicated in Israel Estate, the “control” factor is not decisive in the analysis. I am satisfied that the intention of the parties at the time of the POCS Agreement was that Fonthill Gardens have an option to purchase all or part of Parcel A that constituted an equitable interest in that property. That intention is evident from the terms of the POCS Agreement, including the fact (although not in itself determinative) that s. 5.1 uses the words “option to purchase” to describe Fonthill Gardens’ Parcel A purchase right. It is also relevant that the parties have a continuing consensus that Fonthill Gardens’ Parcel A purchase right is an option to purchase that constitutes an equitable interest in land.
[42] Fonthill Gardens argues that I should reach the same conclusion with respect to its purchase right relating to the Additional Town Land. The Town does not agree.
[43] As previously noted, under the second part of s. 5.1 of the POCS Agreement, the Town agrees to allow Fonthill Gardens to purchase the Additional Town Land on the same terms and conditions as Parcel A. Those terms and conditions include, in particular, the requirement for site plan approval for development. That purchase right is also subject to the following additional requirements: (i) the Additional Town Land is “necessary for the construction of the Medical Centre and Retirement Residence”; (ii) the Town “does not require the Town Lands for its own purposes”; and (iii) the purchase of the Additional Town Land “does not interfere with the development of the Town Lands by the Town for its own purposes.”
[44] To support the position that its Additional Town Land purchase right is an option to purchase, Fonthill Gardens relies on the Supreme Court of Canada decision in Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, 1995 CanLII 87 (SCC), [1995] 2 S.C.R. 187. In particular, Fonthill Gardens says that its Additional Town Land purchase right has the “three principal features of an option” referred to in Mitsui, at pp. 200-201, that is:
exclusivity and irrevocability of the offer to sell within the time period specified in the option;
specification of how the contract of sale may be created by the option holder; and
the obligation of the parties to enter into a contract of sale if the option is exercised.
[45] According to Fonthill Gardens, the additional requirements that must be met to exercise the Additional Town Land purchase right (like the requirement for site plan approval) are properly characterized as “simply conditions precedent to the exercise of the option; they are not conditions precedent to the option per se”: Mitsui, at p. 203. The court also notes that “[t]he fact that [the purchase right] is subject to conditions precedent does not alter its nature”: Mitsui, at p. 205. Fonthill Gardens also relies on Mitsui, at pp. 204-205, to support its submission that the Town had a good faith obligation to take steps to bring about the events constituting a condition precedent to the extent they are within the Town’s control.
[46] Fonthill Gardens also says that when considering the condition that the Town does not require the Additional Town Land for its own purpose, it is appropriate to consider and give effect to the intention of the parties at the time the POCS Agreement was entered into (see Israel Estate, at para. 38). At that time, there was no firm indication of (i) how much Town land would be required for the community centre, or (ii) how the Town would finance the building of the community centre. According to Fonthill Gardens, the POCS Agreement evidences the Town’s intention that part of the financing for the community centre would be from the sale of Town land to Fonthill Gardens upon the exercise of its purchase right under that agreement during the exercise period, including its Additional Town Land purchase right. Considered in this light, Fonthill Gardens says that it is not appropriate to interpret the Town’s “own purposes” to include selling part of the Additional Town Land during the exercise period to pay down debt incurred to develop and build the community centre. Fonthill Gardens also says that by taking that position, the Town is not acting in good faith. As further evidence of the Town’s lack of good faith, Fonthill Gardens notes that the Town has not to date retained an independent planning consultant to review development applications, as required by s. 3.6 of the POCS Agreement.
[47] I do not agree with Fonthill Gardens’ position. For the reasons below, I have concluded that Fonthill Gardens’ purchase right relating to the Additional Town Land is a personal right that does not constitute an option to purchase. Accordingly, that purchase right does not constitute an equitable interest in property.
[48] In their submissions, both parties focused on the proviso to Fonthill Gardens’ Additional Town Land purchase right that “the Town does not require the Town Lands for its own purposes”. In my view, that term effectively takes the purchase right out of the realm of “irrevocability” (the first of the three principal features of an option referred it in Mitsui, at pp. 200-201) by providing the Town with the right to determine whether the option can be exercised by deciding that the Town required the land for its own purposes. The Town’s right to do so is also inconsistent with the third of the three principal features referred in Mitsui, that is, “the obligation of the parties to enter into a contract of sale if the option is exercised.” If the Town decides it requires the land for its own purposes, it is not required to sell the land.
[49] Fonthill Gardens is correct that the Town’s right to determine that it requires the land for its own purposes is not completely unfettered because of its obligation to act in good faith in making that determination. I also recognize that (notwithstanding the contrary indication in Canadian Long Island) “control” relating to the exercise of the purchase right should not be the determining factor. However, I agree with the Town that this proviso makes the right more akin to a first refusal right than an option to purchase.
[50] In the case of a first refusal right, the party granting the purchase right exercises control over whether the right holder is able to exercise its first refusal right. The first refusal right can be exercised only if the grantor “receives an offer to purchase that it is prepared to accept” (see Israel Estate, at para. 23). Similarly, Fonthill Gardens can exercise its purchase right relating to the Additional Town Land provided that the Town does not require the land for its own purposes. The Town exercises control over the exercise to that extent. I recognize that control is not the determining factor, as noted in Israel Estate. However, as is the case when considering a first refusal right, the grantor’s degree of control with respect to the exercise of the purchase right is a relevant factor that may be taken into account in determining whether the parties intended that the purchase right constituted an immediate interest in land.
[51] In any case, I consider the conclusion that Fonthill Gardens’ Additional Town Land purchase right is not an option to purchase to be consistent with the intention of the parties at the time they entered into the POCS Agreement. Of particular note is the wording of the purchase right in the second part of s. 5.1, which was added to that section when the original agreement was amended in June 2015. Unlike the Parcel A purchase right in the first part of s. 5.1, the Additional Town Land purchase right is not described as an “option to purchase”. The second part of s. 5.1 sets out the circumstances under which the Town agrees that it “shall allow Fonthill Gardens to purchase an additional portion of Town Lands”. As already indicated, at least one of those provisos is inconsistent with a finding that the purchase right was intended to provide Fonthill Gardens with an immediate equitable interest in the Additional Town Land, that is, the proviso that the Town not require the land for its own purposes.
[52] In addition, I do not find persuasive Fonthill Gardens’ submission that other parts of the POCS Agreement support its position that the Town’s “own purposes” should be read narrowly to exclude the sale of surplus land to pay down interim debt incurred to develop and build the community centre. In particular, I do not agree that the rest of the POCS Agreement should be read as suggesting that the sale of Additional Town Land to Fonthill Gardens pursuant to its purchase rights under the second part of s. 5.1 formed any necessary part of the Town’s financing plan for the community centre. By its terms, the focus of the POCS Agreement is clearly the development of a medical centre, a retirement residence, and other associated and commercial uses, not the community centre.
[53] Fonthill Gardens also argued that in determining the intention of the parties at the time the POCS Agreement was entered into, I should consider the factual matrix at that time to assist in the interpretation of that agreement. Respondent’s counsel also suggests that if consideration of the factual matrix gave rise to a “triable issue”, I should refuse the application and submit the matter for arbitration as contemplated by the POCS Agreement.
[54] As indicated in Israel Estate, it is appropriate to consider the factual matrix when interpreting an agreement in order to determine the intention of the parties at the time the agreement was made. That principle is consistent with the decision of the Supreme Court of Canada in Sattva Capital Corp. v.Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, a decision referred to in Israel Estate, at para. 44. In Sattva, the Supreme Court makes it clear that the objective of contractual interpretation is to ascertain the objective intentions of the parties having regard to the wording of the contract and the factual matrix in which it was constructed. The court must read the contract as a whole giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of the contract’s formation: Sattva, at para. 47. However, evidence of surrounding circumstances cannot be allowed to overwhelm the words used. Courts cannot use evidence of context to deviate from the text so as to effectively create a new agreement: Sattva, at para. 57. In that regard, the parol evidence rule remains good law. That rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary or contradict a contract that has been wholly reduced to writing: Sattva, at para. 59.
[55] In reaching the conclusion that the Additional Town Land purchase right does not constitute an equitable interest in land, I considered the factual matrix as set out in the parties’ application records, including the fact that at the time of formation of the POCS Agreement (both the original agreement and the amending agreement), there was no firm indication of how much Town land would be required for the community centre or how the Town would finance the building of the community centre. However, I saw nothing in the factual matrix that would lead me to conclude that I should interpret the purchase right in the second part of s. 5.1 of the POCS Agreement as constituting an immediate equitable interest in land.
[56] In addition, I saw nothing in the evidence to support Fonthill Gardens’ suggestion that the Town was not acting in good faith in its dealing with Fonthill Gardens, including the fact that an independent planning consultant has not been retained to review development applications. While the parties’ application records indicate there were discussions between the Town and Fonthill Gardens from at least the fall of 2017, it was not until September 2018 that Fonthill Gardens submitted a “conceptual development plan” to the Town for the development of a retirement residence and other commercial uses, after the Town had already agreed to sell part of the Additional Town Land to a third party. In these circumstances, I find it difficult to conceive how Fonthill Gardens would be prejudiced by the absence of an independent planning consultant prior to that time.
[57] I also considered Fonthill Gardens’ suggestion that if consideration of the evidence gave rise to a “triable issue”, I should refuse the application and submit the matter for arbitration. While no “triable issue” has arisen, adopting that course of action, in my view, would be inconsistent with Ramsay J.’s decision in which he refused to stay this application pending arbitration. The parties are of course free to pursue arbitration on other matters that may be in dispute, as contemplated by the POCS Agreement.
[58] Accordingly, I find that Fonthill Gardens’ purchase right relating to the Additional Town Land is not an option to purchase that constitutes an equitable interest in the Additional Town Land.
III. Registration entitlement
[59] Is notice of Fonthill Gardens’ interest in the Additional Town Land capable of being registered on the title to the property?
[60] Fonthill Gardens argues that even if its Additional Town Land purchase right does not constitute an option to purchase, notice of its purchase right is capable of being registered on the title to the Additional Town Land. I agree with that submission.
[61] Subsection 71(1) of the Land Titles Act provides as follows:
Any person entitled to or interested in any unregistered estates, rights, interests or equities in registered land may protect the same from being impaired by any act of the registered owner by entering on the register such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the Director of Titles.
[62] In Benzie v. Hania, 2012 ONCA 766, 112 O.R. (3d) 481, the Court of Appeal held that a first refusal right relating to a parcel of land was capable of being registered on the title to the land pursuant to s. 71(1) of the Land Titles Act. In reaching that conclusion, the court noted (at paras. 76-77) that s. 71(1) by its terms did not restrict registration to rights that constitute an equitable interest in land:
76 Now note the breadth of language used in s. 71(1) when describing that which can be registered pursuant to it. Section 71(1) does not limit registration to those entitled to an unregistered equity in land. It provides that any person "entitled to" or "interested in", among other things, any unregistered equity in registered land can be protected by registration under s. 71(1).
77 As the legislature used the words "interested in" as well as "entitled to", the words "interested in" must have some meaning other than entitlement. On their plain and ordinary meaning, a person who is "interested in" a right, interest or equity has something less than one who is "entitled to" that right, interest or equity.
[63] I agree with Fonthill Gardens that, on the same reasoning, notice of Fonthill Gardens’ purchase right relating to the Additional Town Land is capable of being registered on title. At a point in time when the conditions to Fonthill Gardens’ purchase right are met (the “point of crystallization”, the term used in Benzie), Fonthill Gardens would have an equitable interest in the land: Benzie, at para. 75. Prior to the point of crystallization, Fonthill Gardens has a “legal interest that will swell into an equitable interest on crystallization. In the language of s. 71(1), the holder is a person ‘... interested in [an] unregistered ... [equity] in registered land ...’. Accordingly, [the purchase right] can be protected by registration under s. 71(1)”: Benzie, at para. 78.
[64] The Town argues that notice of Fonthill Gardens’ purchase right relating to the Additional Town Land cannot be registered under s. 71(1), since it is not an interest in land. To support that position, the Town relies on McLeod v. Walker, 2015 ONSC 5984, 60 R.P.R. (5th) 231. In that case, respondent registered on title notice of a trust interest in the net proceeds of disposition that may arise on the sale of the property. The application judge ordered the removal of that notice from title, holding that the notice was not capable of being registered under s. 71(1) of the Land Titles Act. In doing so, the application judge considered but distinguished the Court of Appeal decision in Benzie, relying on the statutory prohibition against registration of notice of a trust interest in s. 62(2) of the Land Titles Act: McLeod, at paras. 19 and 24-38.
[65] In my view, the McLeod decision is clearly distinguishable from the matter before me. Section 62(2) does not apply since Fonthill Gardens’ purchase right relating to the Additional Town Land is not a trust interest. It is clear from the reasons in McLeod that absent s. 62(2) and consistent with the reasoning in Benzie, the respondent would have been entitled to register notice of her interest on title: McLeod, at para. 35.
[66] Accordingly, I have concluded the notice of Fonthill Gardens’ purchase right relating to the Additional Town Land is capable of being registered on the title to the Additional Town Land pursuant to s. 71(1) of the Land Titles Act.
[67] The Town also argued that even if notice of Fonthill Gardens’ purchase right relating to the Additional Town Land is capable of being registered, it is not entitled to register a Notice of Option to Purchase – it cannot give notice of an interest greater than it has. That issue is considered in the next section of these Reasons.
IV. Registration of Notice of Option to Purchase
[68] Should the Notice of Option to Purchase be deleted from the title to the Additional Town Land that the Town has agreed to sell to a third party?
[69] Pursuant to s. 160 of the Land Titles Act, a “person aggrieved by an entry” in the land title register “may apply to the court for an order that the register be rectified.” The court may make a rectification order “if satisfied of the justice of the case.”
[70] The Town argues that an order should issue under s. 160, deleting the Notice of Option to Purchase from the title to the Additional Town Land that the Town has agreed to sell.
[71] The Town says that Fonthill Gardens’ purchase right relating to the Additional Town Land does not constitute an option to purchase. I have already held that the Town is correct on that point. I have also held, however, that notice of Fonthill Gardens’ purchase right is capable of being registered on the title to the Additional Town Land.
[72] On the assumption that notice of Fonthill Gardens’ purchase right is capable of being registered on title, the Town argues that Fonthill Gardens is not entitled to register a Notice of Option to Purchase that property. Fonthill Gardens’ purchase right is not an option to purchase. It cannot give notice of an interest it does not have.
[73] The Town acknowledges that pursuant to s. 10 of the POCS Agreement, the Town consented to “registration of this Agreement or a notice of it against the title to … the Town Lands.” However, according to the Town, that is not what Fonthill Gardens did, either at the time of the POCS Agreement or subsequently. What it registered in October 2017 was notice of an interest in the Additional Town Land that it does not have, that is, an option to purchase. In the Town’s submission, registration of the notice should not stand.
[74] In its submissions, the focus of Fonthill Gardens’ response to the Town’s position was that Fonthill Gardens’ purchase right is, in fact, an option to purchase the Additional Town Land. While I do not consider it unreasonable for Fonthill Gardens to have taken that position, I have already rejected that submission and found that its interest is not an option to purchase. I have, however, accepted its position that notice of Fonthill Gardens’ purchase right is capable of registration against the Additional Town Land, given the broad scope of s. 71(1) of the Land Titles Act.
[75] In the alternative, Fonthill Gardens argues that by ordering the deletion of the Notice from title to the Additional Town Land, I would be taking an unduly technical approach. As noted in Benzie, at para. 79, by its terms, the “clear purpose of s. 71(1) … is to protect those with interests in unregistered … interests … in registered land from impairment by the registered owners.” Fonthill Gardens says that leaving the existing Notice on title serves that purpose. Fonthill Gardens also says that the forms of Notice that are acceptable to the Director of Titles under the Land Titles Act are limited: see Benzie, at para. 83. A “Notice of Option to Purchase” is a form that is acceptable to the Director. Respondent’s counsel was not aware of an alternative form that would be acceptable to the Director of Titles.
[76] I am sympathetic to Fonthill Gardens’ position that it should not be left without the protection afforded by s. 71(1) by reasons of a technicality. Nevertheless, I accept the Town’s submission that neither s. 71(1) nor s. 10 of the POCS Agreement provides Fonthill Gardens with the authority to register on title an interest in the Additional Town Land that Fonthill Gardens does not have. Its purchase right is not an option to purchase. Accordingly, Fonthill Gardens is not entitled to register notice of an option to purchase on title to that property.
[77] Accordingly, I am prepared to direct that the Notice of Option to Purchase be deleted from the title to that part of the Additional Town Land requested by the Town (being parts 6, 14 and 15 of Plan 59R-16208), and to direct the Land Registry Office at Niagara South to take the necessary steps to give effect to that direction. However, in all the circumstances, I am also ordering that these directions take effect 30 days after the date of these Reasons for Judgment. That period of time is intended to permit the parties to take any steps they deem advisable to preserve their respective positions.
V. Disposition
[78] Accordingly, judgment will issue as follows:
A declaration will issue that Fonthill Gardens does not have an option to purchase parts 6, 14 and 15 of Plan 59R-16208.
The Notice of Option to Purchase registered by Fonthill Gardens on October 19, 2017, shall be deleted from the title to parts 6, 14 and 15 of Plan 59R-16208. The Land Registry Office at Niagara South (LRO 59) is directed to take the necessary steps to give effect this direction. This paragraph shall take effect 30 days from the date of these Reasons for Judgment.
Costs of this motion shall be determined based on written submissions.
[79] If the parties cannot agree on costs, the Applicant may serve and file brief written submissions (not to exceed three pages) together with a costs outline within 21 days. The Respondent may respond by brief written submissions within 14 days. The Applicant may reply by brief written submissions within seven days. If no submissions are received within the specified timeframe, the parties will be deemed to have settled costs.
The Honourable Mr. Justice R. A. Lococo
Released: January 25, 2019
COURT FILE NO.: 12298/18 (Welland)
DATE: 20190125
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
THE CORPORATION OF THE TOWN OF PELHAM
Applicant
– and –
FONTHILL GARDENS INC.
Respondent
REASONS FOR JUDGMENT
R.A. LOCOCO J.
Released: January 25, 2019